Airbus A350 deliveries deferred by American Airlines

Biggest US carrier sees revenues slide and puts back purchases of new aircraft as spending policy questioned by shareholders.

An American Airlines A320. The carrier has reported a fall in profits and will put off purchases of A350 wide-body planes. Courtesy Airbus
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American Airlines said it would defer deliveries of 22 wide-body Airbus A350 aircraft to spread out more than US$1 billion in spending, as its second-quarter profit fell 44 per cent from a year ago, to $950 million.

The airline reached an agreement with Airbus to take A350 XWB aircraft from late 2018 through 2022, deferring each plane’s arrival by an average of 26 months. American previously was to get the first A350 in spring 2018, it said at the weekend.

The move will save American $500m next year and $700m in 2018 as some investors are questioning its use of debt to finance new planes. It also gives the carrier more flexibility in how to use its fleet, said the president Scott Kirby.

“All these aircraft were scheduled to be replacements for existing aircraft,” he said. “We can extend some of the leases longer to keep flying and keep the existing plans in place or, given a weak international environment, pull back on what our growth plans otherwise would have been.”

With the deferrals, American’s capital spending on planes will peak this year along with its net debt, said the chief financial officer Derek Kerr. The carrier will pay $4.4bn for aircraft this year, $4bn in 2017 and more than $2bn in each of 2018, 2019 and 2020, he said.

“That’s a clear positive,” said Joseph DeNardi, an analyst at Stifel Financial. “They don’t need the planes and they are trying to lower their capex profile.”

Reduced spending because of the delayed A350 deliveries will provide a lift to free cash flow after the airline’s “aggressive” fleet renewal programme and share repurchases boosted total debt, Mark Streeter, an analyst at JPMorgan, said in a note.

Adjusted second-quarter earnings fell to $1bn. Revenue fell 4.3 per cent to $10.4bn, the company said.

American expects revenue from each seat flown a mile, a key industry metric that reflects fares and demand, to fall 3.5 per cent to 5.5 per cent this quarter from a year earlier. So-called unit revenue has been down for more than a year, although Mr Kirby said he expects the measure to improve.

“We’re looking forward to getting back to growing” that benchmark financial gauge, he said.

The carrier also sees a pretax profit margin, excluding special items, of 12 per cent to 14 per cent this quarter.

American said this month it would cut growth plans by 0.5 percentage point, to 2 per cent, for 2016. Delta Air Lines and United Continental have also announced capacity reductions since last year.

Like other airlines, American is making money but seeing its profit trimmed by lower average fares, the soft global economy, and the strong dollar, which hurts sales overseas.

The Fort Worth-based company argued that the results were skewed because it made a $543m provision for income taxes while it paid no taxes a year ago.

While jet fuel prices levelled off this year, they are still far lower than a year ago. American saved $530m on fuel, or about 25 per cent, when including fuel it buys for carriers that operate its American Eagle flights.

Labour costs rose $306m, or 13 per cent, and again eclipsed fuel as American’s largest single expense.

American Airlines shares have fallen 17 per cent since the beginning of the year. The stock has dropped 15 per cent in the last 12 months.

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